Spanish bank plan

Opinion

Spain announced a further requirements for banks to strengthen their provisions for real estate loans on Friday. The requirement is for a further €30bn (£24.4bn $39.6bn ¥3,174bn Y248.9bn) of reserves. Banks have just 15 days to say how they will raise the money themselves. Any bank that cannot do this will be required to borrow the money from the state in the form of convertible bonds. The banks will pay 10% interest on the bonds. A €15bn fund is to be created for the banks that cannot raise the necessary funding.

There is little pretence that the new 45% level provision on real estate lending will be the end of the problem. The Spanish themselves have already calculated that a fresh provisions of €80bn rather than €30bn will be closer to an eventual figure - and some believe that €100bn is more realistic. It would seem that with this step by step approach Spain is hoping that the banks will maintain all reasonable capital levels while dealing with the writeoffs over a period of years. In this way they are hoping to avoid a major bailout from the ECB and IMF. Many international observers do not believe this can work. To help determine the current position more accurately Spain has agreed to an EU plan to hire two auditors to value the lenders real estate assets. There remain concerns that not all such lending is clearly recognised in the banks financial returns.

It is understood Santander will have to find an additional €5bn of capital. €2.3bn relates to the previous provision increases and €2.7bn to the latest. CaixaBank, including Civica which it is in the process of acquiring, will require €2.1bn and BBVA €1.8bn. The state has already said it will provide Bankia with any capital required after converting its interest to a 45% equity stake last week.